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Smart Powerr Corp. — Annual Report 2011
Feb 24, 2011
35421_rns_2011-02-24_9e2a4623-a8fa-4334-be94-55966e532dc6.zip
Annual Report
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Albany Atlanta Brussels Denver Los Angeles THOMAS WARDELL (404) 527-4990 www.mckennalong.com New York Philadelphia San Diego San Francisco Washington, DC EMAIL ADDRESS [email protected]
February 24, 2011
Via EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549-0405
Attn: William H. Thompson, Accounting Branch Chief
Re: China Recycling Energy Corporation
Form 10-K for the Fiscal Year Ended December 31, 2009
Filed March 16, 2010
File No. 1-34625
Dear Mr. Thompson:
This firm is counsel to the above-referenced company, China Recycling Energy Corporation (“CREG” or the “Company” and sometimes referred to as “we” or “our”) and is filing this response to your comment letter, dated February 9, 2011, with respect to the above-referenced filings on CREG’s behalf. For convenience of reference, we have included, in this response letter, the same caption and paragraph number, as well as the text of the comment, set forth in your comment letter followed by our response.
Form 10-K for Fiscal Year Ended December 31, 2009
Item 8. Financial Statements and Supplementary Data, page 26
Consolidated Statements of Cash Flows, page 30
- We reviewed your response to comment one in our letter, dated January 4, 2011, which indicates that revised consolidated statements of cash flows are attached to the response. However, we are unable to locate the revised statements in submitted correspondence files. Please submit the revised statements as correspondence so that we are able to review your proposed revisions. In addition, please tell us whether you plan to restate your statements of cash flows presented in the filing and in subsequently filed quarterly reports on Form 10-Q. If so, tell how you intend to disclose the restatements. If not, please explain the quantitative and qualitative reasons why a restatement is not necessary. Refer to SAB Topics 1:M and 1:N.
United States Securities and Exchange Commission
February 24, 2011
Page 2
Response:
The revised Consolidated Statements of Cash Flows are submitted with this response in accordance with your comment letter, dated of February 9, 2011. The Company does not plan to restate its statements of cash flows presented in its Form 10-K for the fiscal year ended December 31, 2009, or its quarterly reports on Form 10-Q for fiscal year 2010. The Company does intend to disclose the reclassification of cash flows for fiscal year ended December 31, 2009, for certain line items, from investing to operating activities, and implement such reclassification prospectively, including in our Form 10-K for the fiscal year ended December 31, 2010, in a footnote to the 2010 financial statements included in its Form 10-K, and will present its Cash Flow statements consistent with its presentation on the attached statement in all reports thereafter.
Qualitatively, the reclassification of cash flows is undertaken in order to provide consistency in presentation. The Company believes that the decision as to classification of cash flows with respect to the construction of its projects and payments received under sales-type leases of these projects as either operating or investing inflow or outflow is subject to interpretation and is not clearly directed by GAAP. In connection with its conversations with the Staff, the Company understands and agrees with the position that consistency in treatment of both cash inflow and outflow provides disclosure that is more easily understood. However, the change to treating both outflows and inflows as operating items has no overall effect either on the net cash flow itself or on the other financial statements of the Company, and as such the Company does not believe that the reclassification rises to the level of requiring retrospective restatements of the cash flows in its prior filings.
In addition, qualitatively, the Company does not believe there is any need to retroactively restate the cash flows because:
· There is no change in net income or earnings per share
· There is no change in the net cash flows for any period
· There is no change in any balance sheet or income statement line items
· There is no cumulative effect of the change on retained earnings or any other component of equity or net assets.
Should you have further comments or require further information, or if any questions should arise in connection with this submission, please call me at (404) 527-4990 or Mr. James Thornton at (404) 527-8118.
| Very truly yours, |
|---|
| /s/ Thomas Wardell |
| Thomas Wardell |
cc: David Chong, CFO, China Recycling Energy Corp.
Jeffrey Li, Esq.
James L. Thornton, Esq.
| CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES |
|---|
| CONSOLIDATED BALANCE SHEETS |
| September 30, 2010 (Unaudited) | December 31, 2009 | |
|---|---|---|
| ASSETS | ||
| CURRENT ASSETS | ||
| Cash & cash equivalents | $ 6,488,518 | $ 1,111,943 |
| Restricted cash | 2,253,361 | 1,461,659 |
| Investment in sales type leases, net | 6,635,231 | 4,396,395 |
| Interest receivable on sales type leases | 766,580 | 437,626 |
| Prepaid expenses | 154,798 | 445,458 |
| Other receivables | 414,248 | 184,355 |
| Subscription receivable | 430,500 | - |
| VAT receivables - current | 1,268,448 | 383,027 |
| Total current assets | 18,411,684 | 8,420,463 |
| NON-CURRENT ASSETS | ||
| VAT receivables - noncurrent | 1,053,437 | 957,567 |
| Investment in sales type leases, net | 86,733,485 | 48,147,738 |
| Property and equipment, net | 172,524 | 97,311 |
| Construction in progress | 45,907,791 | 34,858,845 |
| Total non-current assets | 133,867,237 | 84,061,461 |
| TOTAL ASSETS | $ 152,278,921 | $ 92,481,924 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| CURRENT LIABILITIES | ||
| Accounts payable | $ 6,208,498 | $ 3,583,219 |
| Notes payable - bank acceptances | 2,999,508 | 1,461,659 |
| Interest payable | 2,509,889 | - |
| Taxes payable | 1,707,112 | 681,707 |
| Accrued liabilities and other payables | 2,945,354 | 2,785,796 |
| Advance from related parties, net | 4,036,492 | 468,475 |
| Convertible note, net of discount due to beneficial conversion feature | 3,980,937 | - |
| Accrued interest on short term convertible note | 127,939 | - |
| Deferred tax liability-current | 54,466 | 148,193 |
| Loans payable - current | 1,343,063 | - |
| Total current liabilities | 25,913,258 | 9,129,049 |
| NONCURRENT LIABILITIES | ||
| Shares to be issued | 12,812,971 | - |
| Deferred tax liability, net | 5,446,238 | 2,762,115 |
| Convertible notes | 3,000,000 | 8,000,000 |
| Accrued interest on long term convertible notes | 346,668 | 353,024 |
| Loans payable | 40,761,965 | 25,570,429 |
| Total noncurrent liabilities | 62,367,842 | 36,685,568 |
| Total liabilities | 88,281,100 | 45,814,617 |
| CONTINGENCIES AND COMMITMENTS | ||
| STOCKHOLDERS' EQUITY | ||
| Common stock, $0.001 par value; 100,000,000 shares | ||
| authorized, 38,778,035 shares issued and outstanding | ||
| as of September 30, 2010 and December 31, 2009, respectively | 38,779 | 38,779 |
| Additional paid in capital | 42,583,642 | 38,319,163 |
| Statutory reserve | 4,288,441 | 2,497,724 |
| Accumulated other comprehensive income | 4,929,794 | 3,709,490 |
| Retained earnings | 9,922,599 | 1,485,914 |
| Total Company stockholders' equity | 61,763,255 | 46,051,070 |
| Noncontrolling interest | 2,234,566 | 616,237 |
| Total equity | 63,997,821 | 46,667,307 |
| TOTAL LIABILITIES AND EQUITY | $ 152,278,921 | $ 92,481,924 |
Updated
| CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES |
|---|
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (UNAUDITED) |
| NINE MONTHS ENDED SEPTEMBER 30, — 2010 | 2009 | |||
|---|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Income including noncontrolling interest | $ 10,817,221 | $ | 8,097,090 | |
| Adjustments to reconcile income including noncontrolling | ||||
| interest to net cash provided by operating activities: | ||||
| Changes in gross sales type leases receivables | (30,724,470 | ) | (11,032,444 | ) |
| Depreciation and amortization | 9,298 | 23,155 | ||
| Amortization of discount related to conversion feature of convertible note | 1,326,274 | - | ||
| Stock options and warrants | 1,919,102 | 1,129,328 | ||
| Stock compensation expense | 602,000 | - | ||
| Accrued interest on convertible notes | 121,583 | 60,182 | ||
| Changes in deferred tax | 2,495,828 | 1,731,344 | ||
| (Increase) decrease in current assets: | ||||
| Interest receivable on sales type leases | (315,675 | ) | (379,331 | ) |
| Collection of principal on sales type leases | 3,267,917 | 1,547,527 | ||
| Prepaid expenses | 294,464 | 3,828,438 | ||
| VAT receivable and other receivables | (1,163,901 | ) | (113,744 | ) |
| Increase (decrease) in current liabilities: | ||||
| Accounts payable | 4,004,280 | 847,314 | ||
| Taxes payable | 996,753 | (1,917,728 | ) | |
| Unearned revenue | - | (658,655 | ) | |
| Interest payable | 2,470,914 | - | ||
| Accrued liabilities and other payables | 112,574 | (260,167 | ) | |
| Construction in progress | (10,226,469 | ) | (8,255,441 | ) |
| Net cash used in operating activities | (13,992,307 | ) | (5,353,132 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
| Increase investment in subsidiary | - | (16,100 | ) | |
| Restricted cash | (752,116 | ) | (4,393,159 | ) |
| Acquisition of property & equipment | (81,526 | ) | (15,096 | ) |
| Net cash used in investing activities | (833,642 | ) | (4,424,355 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Insurance of common stock | - | 2,000,000 | ||
| Insurance of convertible notes | - | 3,000,000 | ||
| Cash contribution from noncontrolling interest | 908,279 | 263,439 | ||
| Proceeds from loans | 15,800,376 | 2,927,358 | ||
| Advance from related parties | 3,504,613 | - | ||
| Net cash provided by financing activities | 20,213,268 | 8,190,797 | ||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS | (10,744 | ) | 2,646 | |
| NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS | 5,376,575 | (1,584,044 | ) | |
| CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,111,943 | 7,267,344 | ||
| CASH & CASH EQUIVALENTS, END OF PERIOD | $ 6,488,518 | $ | 5,683,300 | |
| Supplemental Cash flow data: | ||||
| Income tax paid | $ 1,307,901 | $ | 1,307,406 | |
| Interest paid | $ 269,083 | $ | 319,086 |
Original
| CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES |
|---|
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (UNAUDITED) |
| NINE MONTHS ENDED SEPTEMBER 30, — 2010 | 2009 | |||
|---|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Income including noncontrolling interest | $ 10,817,221 | $ | 8,097,090 | |
| Adjustments to reconcile income including noncontrolling | ||||
| interest to net cash provided by operating activities: | ||||
| Depreciation and amortization | 9,298 | 23,155 | ||
| Amortization of discount related to conversion feature of convertible note | 1,326,274 | - | ||
| Stock options and warrants | 1,919,102 | 1,129,328 | ||
| Stock compensation expense | 602,000 | - | ||
| Accrued interest on convertible notes | 121,583 | 60,182 | ||
| Changes in deferred tax | 2,495,828 | 1,731,344 | ||
| (Increase) decrease in current assets: | ||||
| Interest receivable on sales type leases | (315,675 | ) | (379,331 | ) |
| Prepaid expenses | 294,464 | 3,828,438 | ||
| VAT receivable and other receivables | (1,163,901 | ) | (113,744 | ) |
| Increase (decrease) in current liabilities: | ||||
| Accounts payable | 4,004,280 | 847,314 | ||
| Taxes payable | 996,753 | (1,917,728 | ) | |
| Unearned revenue | - | (658,655 | ) | |
| Interest payable | 2,470,914 | - | ||
| Accrued liabilities and other payables | 112,574 | (260,167 | ) | |
| Construction in progress | (10,226,469 | ) | (8,255,441 | ) |
| Net cash provided by operating activities | 13,464,246 | 4,131,785 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
| Initial investment in sales type leases | (30,724,470 | ) | (11,032,444 | ) |
| Collection of principal on sales type leases | 3,267,917 | 1,547,527 | ||
| Increase investment in subsidiary | - | (16,100 | ) | |
| Restricted cash | (752,116 | ) | (4,393,159 | ) |
| Acquisition of property & equipment | (81,526 | ) | (15,096 | ) |
| Net cash used in investing activities | (28,290,195 | ) | (13,909,272 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Insurance of common stock | - | 2,000,000 | ||
| Insurance of convertible notes | - | 3,000,000 | ||
| Cash contribution from noncontrolling interest | 908,279 | 263,439 | ||
| Proceeds from loans | 15,800,376 | 2,927,358 | ||
| Advance from related parties | 3,504,613 | - | ||
| Net cash provided by financing activities | 20,213,268 | 8,190,797 | ||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS | (10,744 | ) | 2,646 | |
| NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS | 5,376,575 | (1,584,044 | ) | |
| CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,111,943 | 7,267,344 | ||
| CASH & CASH EQUIVALENTS, END OF PERIOD | $ 6,488,518 | $ | 5,683,300 | |
| Supplemental Cash flow data: | ||||
| Income tax paid | $ 1,307,901 | $ | 1,307,406 | |
| Interest paid | $ 269,083 | $ | 319,086 |